W2 vs. 1099: A Breakdown of Finances

I’ve always had this idea that even though private practice pays more than a W2, the benefits offered through a W2 far outweigh the money earned in private. As a result, I figured one would have to make approximately 25-30% more in private practice in order to make up for the benefits one obtains from a W2. In this post, I will attempt to analyze the finances one earns as a W2 employee versus working as a 1099 in private practice.

I just want to preface that there’s a lot more to the story than just the finances and benefits package when deciding between private practice and W2. It’s about the type of lifestyle you want to lead, whom you want to surround yourself with, the degree of autonomy you’re looking, and a multitude of other reasons that I can cover ad infinitum. There’s even an argument to be made that one can deduct a myriad of business expenses as a 1099, thereby making private practice even more lucrative. However, in this post, I’m just going to focus on the income generated as a private practice CRNA versus a W2 CRNA.

Perhaps my analysis is flawed and I am definitely willing to admit to this. After all, I’m only good at putting people to sleep and waking them up. I’m not a math whiz. I’m not an accountant. I’m just a guy trying to better understand the microeconomics of nurse anesthesia.

With further ado, here’s the table I devised, which I will go through in greater detail in this post. My initial inquiry prior to developing this table was how much money would I have to make in private practice in order to obtain the same salary and benefits package at my W2 job and again, this is purely a question of finances.

All benefits except for salary were calculated on a monthly basis, while salary calculations were calculated on annual basis. *Annual gross does not include employer pension contribution. **Life insurance includes supplemental, dependent, and AD&D coverage.

W2 Salary

My annual gross for 2016 was approximately $190,000. I included the retirement packages offered through my employer along with the contributions I have to make to my pension. All told, I save ~$50,000 pre-tax in my retirement accounts. However, one of the perks of working for this employer is the fact that they, too, contribute to my pension (~14% of my gross salary), so in 2016, they contributed $26,600. That $26,600 is not included in my gross salary though, but I am able to collect that money if I terminate my relationship and decide to work elsewhere. To be clear, the $50,000 that I save in my pension and retirement comes from my annual gross of $190,000. I did not factor in the $26,600 to the gross given that I don’t get to touch that money unless I retire or leave.

W2 Benefits

My employer either pays for the bulk or the entirety of my benefits package which includes malpractice, medical, dental, vision, short term disability, supplemental disability, life insurance, supplemental life, dependent life, AD&D insurance, and legal advice. Of the $1148 that is paid monthly towards my benefits, I am responsible for paying $232 while my employer covers the remaining balance of $916. One caveat is that I’m not entirely sure how much my malpractice through my employer actually costs. I came to $300 per month from my own research on policy quotes online for self-employed CRNAs. The assumption is that there’s a $1 million/$3 million limit and that coverage is an occurrence policy.

Private Practice Salary

Basically, on purely a numbers perspective, one would have to earn ~$217,000 in private to obtain the salary one would obtain from a W2 position ($190,000 W2 gross + $26,600 pension benefit). The good news about working in private practice is that one has access to a SEP IRA, which a type of retirement investment account one can open as 1099. As of 2017, the maximum contribution is $54,000; not bad considering that it’s $4,000 more you can sock away in private practice versus a W2 employee who has access to a pension and 2 retirement accounts. Most employers only offer a 401(k) and rarely do we see pensions anymore.

Private Practice Benefits

Well, unsurprisingly, if you go the private practice route, you are absolutely on your own when it comes to paying for your benefits package. I went online and found numerous quotes that mimicked the same benefits I’m receiving in my W2 and discovered that one would have to fork over $1,191 to have the access to the same benefits.

What about sick time, vacation, and ed leave?

This is something that is often overlooked when I discuss this topic with other CRNAs. At my workplace, I accrue 88 hours of sick, 110 hours of vacation time, and 40 hours of ed leave plus $1,000 of education money. At $93/hour, this amounts to a little over $23,000.

Taxes

When it comes to taxes, every worker is subject to paying a Social Security and Medicare tax, which is part of the Federal Insurance Contributions Act (or FICA for short). The first $118,500 of your income is subject to a tax of 15.3%, 12.4% going to Social Security and the remaining 2.9% going to Medicare.

Every year, the FICA tax rate is calculated as follows:

Employee portion of Social Security tax: 6.2% of $118,500Employer portion of Social Security tax: 6.2% of $118,500Employee portion of Medicare tax: 1.45% of all incomeEmployer portion of Medicare tax: 1.45% of all income

Notice when you sum the employee and employer portion of Social Security tax, it adds up to 12.4%. When you sum the employee and employer contributions to Medicare, you get 2.9%.

If you’re self employed as a 1099, you are responsible for all of those taxes though it should be noted that you get a deduction on your tax return. As a W2, you’re only responsible for the employee portion of Social Security and Medicare taxes. So, what exactly does this mean?

1099 Self-Employment Taxes (Social Security + Medicare)To keep things as simple as possible, I’ll just calculate Social Security and Medicare taxes on the first $118,500. However, just know that any income beyond $118,500 will still be subject to the 2.9% Medicare tax. However, your Social Security contributions max out at $118,500.

That’s a difference of $7,347 that you’d be responsible for as a 1099 employee. Again, I just want to reiterate that even though you may be paying more in taxes and for benefits as a 1099, there are enormous tax benefits you can obtain as a 1099 (which will be covered in a future post). However, with this post, we’re looking at the gross salary of a W2 and 1099 employee using some crude numbers.

So, how much would one have to make?

Well, just by looking at the rudimentary math, in order to determine what one would have to make in private practice in order for to equal what one gets in a W2:

A couple of assumptions in my analysis that I wanted to address:

1) I tried to take into account that the average CRNA takes 4 weeks of vacation off, so that’s why I subtracted $14,000 from my total annual salary of $190,000. The annual salary of $190,000 included the 4 week vacation pay.
2) This analysis includes not taking any sick time or education time, which could skew the results by a couple thousand dollars, but in the grand scheme of things, I think it’s irrelevant to the totality of this analysis.
3) I included the employer portion of the FICA taxes because as a W2, you’re not on the hook to pay that $7,000 and in a sense, you get to pocket that money.

So, there you have it, one would have to make $243,193 in private practice in order to afford and have access to a similar benefits package that a CRNA carries at a W2 job. Of course, this is just one type of W2 that’s specific to the city I live in.